Bank Nationalization (P. Krugman, F. Moseley)

Paul Krugman, in his NYT column today, joins the chorus of people calling for “nationalization” of the big banks. As we have noted here, that chorus includes even the so-called Maestro himself, Alan Greenspan, who told the Financial Times last week that nationalization may be the “least bad” option: “I understand that once in a hundred years this is what you do.” Krugman is at least clear on what he understands by “nationalization”; here are the last three paragraphs of his column:

And once again, long-term government ownership isn’t the goal: like the small banks seized by the F.D.I.C. every week, major banks would be returned to private control as soon as possible. The finance blog Calculated Risk suggests that instead of calling the process nationalization, we should call it “preprivatization.”

The Obama administration, says Robert Gibbs, the White House spokesman, believes “that a privately held banking system is the correct way to go.” So do we all. But what we have now isn’t private enterprise, it’s lemon socialism: banks get the upside but taxpayers bear the risks. And it’s perpetuating zombie banks, blocking economic recovery.

What we want is a system in which banks own the downs as well as the ups. And the road to that system runs through nationalization.

We wonder whom Krugman includes in his statement, “So do we all.” We just posted an article from our March/April issue (to be printed soon) in which economist Fred Moseley argues for permanent nationalization of the “too big to fail” banks. If banks are too big to fail, they should be public, and run in the public interest.